CFTC Annual Report 1997

Division of Enforcement

The Division of Enforcement investigates and prosecutes alleged
violations of the Commodity Exchange Act ("CEA" or
"Act") and Commission regulations. Violations may involve
commodity futures or option trading on domestic commodity exchanges or
the improper marketing of commodity investments. The Division takes
enforcement actions against individuals and firms registered with the
Commission, those who are engaged in commodity futures and option trading
on designated exchanges, and those engaged in the unlawful offer and sale
of futures and option contracts that are not traded on exchanges.

The Division bases investigations on information the Division develops
independently, as well as information referred by other Commission
divisions, industry self-regulatory associations, state, federal, and
international authorities, and members of the public. At the conclusion
of an investigation, the Division may recommend that the Commission
initiate administrative proceedings or seek injunctive and ancillary
relief on behalf of the Commission in federal court. Administrative
sanctions may include orders suspending, denying, revoking or restricting
registrations and exchange trading privileges and imposing civil monetary
penalties, cease and desist orders, and orders of restitution. The
Division also may obtain temporary restraining orders and preliminary and
permanent injunctions in federal court to halt ongoing violations, as
well as civil monetary penalties. Ancillary relief may include
appointment of a receiver, a freeze of assets, restitution, and
disgorgement of unlawfully acquired benefits. When those enjoined violate
court orders, the Division may seek to have the offenders held in
contempt.

When the Division obtains evidence during an investigation indicating
that criminal violations of the CEA have occurred, the Division may refer
the matter to the Department of Justice for prosecution. Criminal
activity involving commodity-related instruments can result in
prosecution for criminal violations of the CEA and for violations of
other federal criminal statutes, including mail fraud, wire fraud and
conspiracy.

The Division provides expert help and technical assistance with case
development and trials to U.S. Attorneys' Offices, other federal and
state law enforcement agencies, and international authorities. The
Commission and individual states may join as co-plaintiffs in civil
injunctive actions brought to enforce the CEA.

During FY 1997, the Commission instituted 17 injunctive actions and 23
administrative proceedings, which included 8 statutory disqualification
actions. Permanent injunctions were entered against 31 individuals or
firms, preliminary injunctions were entered against 32 individuals or
firms, and 10 ex parte temporary restraining orders were obtained.
Five equity receivers were appointed this fiscal year, and approximately
$5.7 million of customer funds and other assets were placed under the
protection of equity receivers.

Administrative litigation resulted in the entry of cease and desist
orders against 31 individuals or firms. Thirty individuals or firms were
prohibited from trading on or subject to the rules of any exchange; 52
registrations with the Commission were denied, suspended, revoked,
conditioned or restricted; and civil monetary penalties totaling
$4,532,000 were imposed on 19 individuals or firms.

This year, the Division has devoted a great deal of its time and
attention to matters involving allegations of fraud in a variety of
contexts. For example, the Division pursues cases against unregistered
persons or entities that have acted in a capacity that requires
registration and which have violated the anti-fraud provisions of the Act
in connection with these activities. Additionally, the Division has filed
cases alleging fraud in the offer and sale of various off-exchange
instruments, including hedge-to-arrive grain contracts, precious metals
contracts, and foreign currency contracts marketed to the general public.
The Division has also pursued cases against entities which it believes
are engaged in the use of fraudulent advertising and solicitations.
During FY 1997, the Division engaged in the following actions.

Unregistered Activity and Fraud

These cases result from a general increase in customer funds under
management by commodity trading advisors (CTAs) and commodity pool
operators (CPOs) and from the public's desire to find profitable
trading programs. Unregistered CPOs, CTAs and FCMs have taken advantage
of this trend by making fraudulent misrepresentations, usually to small
retail customers, to induce them to invest. These unregistered persons
often convert customer funds to their own personal or business use.
Examples of cases alleging unregistered activity and/or fraud filed in FY
1997 follow.

CFTC v. AVCO Financial Corp., et al.

The Commission filed a three-count civil injunctive complaint against
AVCO Financial Corp., Anthony Vartuli and J. Michael Gent. Neither
Vartuli nor Gent has ever been registered with the CFTC. The Commission
filed the case after AVCO failed in its attempt to enjoin the
Commission's investigation. The complaint alleges that the
defendants fraudulently solicit customers to purchase their software
program, known as Recurrence, which provides specific advice about
transactions in exchange-traded foreign currency futures. In addition,
the complaint includes the charge that AVCO acts as an unregistered CTA.
CFTC v. AVCO Financial Corp., et al., No. 97-3119 (S.D.N.Y. filed
Apr. 30, 1997).

In re Arnold

In July 1997, the Commission filed a five-count administrative complaint
against Curtis McNair Arnold and London Financial, Inc. (LFI). Arnold is
president and sole principal of LFI, and neither Arnold nor LFI is
registered with the CFTC in any capacity. The CFTC complaint charges
Arnold and LFI with violating the anti-fraud provisions of the Act and
Commission's regulations by fraudulently soliciting customers to
purchase a commodity futures trading system known as Pattern Probability
Strategy. The complaint also alleges that at least since 1996, the
respondents have fraudulently marketed other trading systems, some
authored by Arnold and some by other system vendors. The Commission
charged Arnold and LFI with acting as unregistered CTAs and charged
Arnold with acting as an unregistered CPO and as an unregistered
associated person of a CPO. In re Arnold, CFTC Docket No. 97-12
(filed July 30, 1997).

CFTC and the State of Florida v. Dowler, et al.

In November 1996, the Commission along with the Florida Department of
Banking and Finance filed a nine-count injunctive complaint against James
V. Dowler and Dowler & Beekman Trading Co. The CFTC and the Florida
Department of Banking and Finance alleged that the defendants embezzled
and converted customers' funds to their own personal and business
uses, committed fraud by falsely representing the state of customers'
accounts, and failed to include the proper information regarding their
hypothetical trading performance in advertisements. The complaint alleges
that the defendants acted as an unregistered CPO, CTA, and associated
person. As alleged in the amended complaint (filed Jan. 27, 1997), Dowler
and D&B Trading misappropriated customer deposits and trading profits
totaling more than $970,000 from customers who opened managed futures
trading accounts with D&B Trading. The Florida Department of Banking
and Finance also charged the defendants with violating the Florida
Securities and Investor Protection Act (FSIPA). In February, the court
entered a permanent injunction requiring that Dowler make full
restitution to D&B Trading's former customers and enjoining both
defendants from violating the Act, Commission's Regulations and
FSIPA, from operating as a CTA, CPO or associating with a CTA and CPO,
and from seeking registration with the Commission in any capacity.
CFTC and the State of Florida v. Dowler, et al., No. 96-14284
(S.D. Fla. filed Nov. 4, 1996).

CFTC v. Hermans

As an outgrowth of the Commission's investigation of Edward
Schroeder, against whom the Commission filed an injunctive action in July
1996 on which the Commission obtained a favorable result in July 1997,
the Commission moved to enjoin fraud in connection with the activity of
unregistered CPO Carl J. Hermans (d/b/a California Traders Group). The
five-count injunctive action against Hermans alleges that he operated an
unregistered pool and aided and abetted the fraud and registration
violations of Schroeder, also an unregistered CPO. One day after the
complaint was filed, the court entered an ex parte order freezing
Hermans' assets and prohibiting his destruction of books and
records. In February 1997, the court issued a preliminary injunction in
accordance with the terms of the ex parte order. In June, the court
entered a default judgment which, among other things, awarded restitution
in the sum of approximately $778,000 and civil monetary penalties in the
amount of $125,000. CFTC v. Hermans, Civ. No. 97-0777 (C.D. Cal.
Feb. 5, 1997).

In re Jewett

In March, the Commission filed a complaint against Eugene Jewett alleging
that he acted as an unregistered FCM when soliciting funds to trade
commodity futures and options on behalf of customers. In May, the ALJ
issued an Initial Decision on Default, finding that Jewett had acted as a
FCM without being registered with the Commission by soliciting and
accepting over $30,000 from customers to open accounts to trade commodity
futures and options on the customers' behalf. The ALJ also found
Jewett liable for commingling customer funds and failing to provide
customers with separate written risk disclosure statements and written
monthly account statements. The ALJ ordered Jewett to cease and desist
various violations of the Act and to pay a total of $30,500 in
restitution to three customers. The ALJ also prohibited Jewett from
trading on any contract market for a period of ten years or until he has
made full restitution to each of the customers, whichever is longer.
In re Jewett, CFTC Docket No. 97-7 (filed Mar. 19, 1997).

CFTC v. Rosenberg

In June, the Commission filed a six-count civil injunctive complaint in
the U.S. District Court for the District of New Jersey against Murray Ira
Rosenberg d/b/a Pro Broker Services Inc. Rosenberg was registered with
the CFTC as a floor broker from April 9, 1985, until January 21, 1995,
but is not currently registered with the CFTC in any capacity. The
complaint alleges, among other things, that between 1993 to 1996
Rosenberg (1) misappropriated and converted $265,000 of customer funds
for his own business and personal living expenses, (2) misrepresented
that he would open an account in a customer's name, when instead
Rosenberg opened the account in his own name, (3) failed to execute and
transmit commodity futures and option trades that a customer asked him to
make, (4) executed trades in the account without customer knowledge or
approval, and (5) provided a customer with IRS form 1099s containing
false information. The complaint also alleges that Rosenberg acted as an
FCM without being registered with the CFTC, commingled the customer's
funds with his own, and failed to provide the customer with the
appropriate transaction confirmations and account statements. CFTC v.
Rosenberg, No. 97-2927 (D. N.J. filed June 19, 1997, and amended
Sept. 2, 1997).

In re Kerzinger

In September, the Commission simultaneously instituted an administrative
proceeding against and accepted an offer of settlement from Willy
Kerzinger. The Commission's order finds that between 1989 and 1994,
Kerzinger, doing business as Commodity Pool Services, acted as an
unregistered CPO and obtained approximately $798,000 from investors as a
result of his fraudulent misrepresentations. The order also finds that
Kerzinger misappropriated investor funds for personal use. Under the
terms of the settlement, the Commission permanently prohibited Kerzinger
from trading commodity futures or options. Kerzinger agreed to (1)
disgorge $15,000 to defrauded investors, (2) never seek registration with
the Commission or engage in activity requiring registration, and (3)
never accept money from others for the purpose of trading commodity
futures or options. The CFTC's action stemmed from a joint
investigation by the CFTC and SEC. The SEC filed a separate and
simultaneous administrative proceeding alleging federal securities
violations and also accepted Kerzinger's offer of settlement. In
re Kerzinger, CFTC Docket No. 97-15 (filed Sept. 4, 1997).

CFTC v. L.A. Forex

Also in September, the Commission filed a five-count civil complaint
alleging that, since early 1996, defendants L.A. Forex, Inc., Gabor Urban
(president of L.A. Forex), and Marta Ban (vice president of L.A. Forex)
misappropriated more than $900,000 in a fraudulent Ponzi scheme in
connection with their operation of an unregistered commodity pool. The
complaint alleges, in part, that the defendants falsely represented to
prospective and current investors that their commodity futures trading
has been highly profitable when, in fact, the only trading conducted by
Urban and Ban sustained over $670,000 in trading losses. It also alleges
that the defendants made numerous fraudulent misrepresentations and
omissions in the course of their solicitation of investors. Three days
following the filing of the complaint, the court entered a temporary
restraining order which prohibits the defendants from soliciting or
accepting funds from the public in any investment relating to commodity
futures. In addition, the court's order freezes the defendants'
assets and prohibits them from both destroying books and records and
denying CFTC representatives access to such records. CFTC v. L.A.
Forex, No. 97-6800 (C.D. Cal. filed Sept. 12, 1997).

CFTC v. Ramirez

In September, the U.S. District Court for the Northern District of
Illinois entered a consent order of permanent injunction against Anthony
S. Ramirez and Abacus Investment Group, Inc., neither of which has ever
been registered with the CFTC. The court's action stems from a
five-count injunctive complaint alleging that the defendants cheated and
defrauded investors by misappropriating and converting customer funds,
and by making misrepresentations and issuing false reports and statements
to investors. Specifically, the complaint alleges that the defendants
accepted at least $507,000 from commodity investors, $385,000 of which
Ramirez converted to his personal use. Defendants agreed (1) to findings
that they committed all of the violations alleged in the complaint; (2)
to be permanently enjoined from further violations of the Act as charged;
(3) to be permanently prohibited from registering with the CFTC and from
engaging in any activity in the commodity futures industry on behalf of
others; (4) to be permanently barred from trading commodities for their
own accounts; and (5) to provide an accounting of customer funds. The
court reserved Issues regarding the CFTC's requests for disgorgement
of profits, restitution of customer funds, and payment of a civil
monetary penalty pending the filing of an accounting by defendants and
discovery by the Commission. CFTC v. Ramirez, No. CIV 97 C 6528
(N.D. Ill. filed Sept. 16, 1997).

Quick Strike Cases

The Division has made a commitment to respond quickly to investigations
which uncover ongoing fraud. Quick strike cases are civil injunctive
actions, generally filed in federal district courts, often within days or
a few weeks of the discovery of the illegal activity. This quick strike
ability enables the Division to put a stop to fraud at an early stage and
to attempt to preserve customer funds. In addition, through these cases,
the court imposes sanctions on wrongdoers in an expedited time period,
sending a strong, deterrent message to other potential wrongdoers. Some
samples of quick strike cases filed to date in FY 1997 follow.

CFTC v. O'Shaughnessey, et al.

In November of 1996, the Commission filed a five-count injunctive
complaint alleging that defendants Daniel M. O'Shaughnessey, Glory
Fund I, Inc., and Glory Fund, L.L.C., defrauded Glory Fund pool
participants, issued false statements, commingled pool funds, and engaged
in false advertising. At the time the complaint was filed, the court
entered an ex parte restraining order freezing defendants'
assets and prohibiting the destruction of, and granting access to,
defendants' books and records. Six days later, the court entered a
consent preliminary injunction consistent with the terms of the ex
parte order. In September 1997, the court granted the
Commission's motion for partial summary judgment and issued an order
enjoining defendant O'Shaughnessey from violating the Act and
Commission's regulations and prohibiting him from soliciting new
customers or accepting new deposits for the purpose of trading commodity
futures. The Court reserved entering orders regarding restitution,
disgorgement or civil monetary penalties pending a hearing. CFTC v.
O'Shaughnessey, et al., No. 96-10421 (E.D. Mich. filed Nov. 20,
1996).

CFTC v. AC Trading Group Fund, et al.

In April, based on a referral and substantial assistance from the
National Futures Association, the CFTC filed an injunctive complaint
against AC Trading Group, Inc., AC Trading Group Fund, L.P., Alexis
Carles, and Fred Eric DeJong. The three-count complaint alleges that the
defendants have falsely represented to prospective commodity pool
investors that their commodity futures trading has been highly
profitable, when in fact they have sustained at least $1.7 million in
trading losses. The CFTC's complaint also alleges that the
defendants sent false account statements reflecting profitable trading,
when in fact their trading had sustained massive losses, and that the
defendants had misappropriated and converted to their personal use more
than $300,000 in investors' funds. The court entered an ex
parte asset freeze order at the time the complaint was filed. Less
than two weeks later, the court entered a preliminary injunction
prohibiting violations of the Act, freezing assets, prohibiting the
destruction of and ordering access to books and records, ordering an
accounting, and prohibiting solicitation of customers and acceptance of
customer funds. CFTC v. AC Trading Group Fund, et al., No. CV
97-3160 MCC (N.D. Cal. filed Apr. 17, 1997).

CFTC v. Rutman

In May, within weeks of receiving a referral, the Commission filed a four
count complaint against Robert Rutman. The complaint includes allegations
that Rutman engaged in fraudulent solicitation by misrepresenting his
track record as a futures trader and the potential risks of trading
commodity futures. The complaint alleges that Rutman repeatedly
misrepresented that he traded futures profitably when, in fact, he traded
unprofitably at all times and lost investor funds. Rutman also failed to
register with the CFTC as an FCM, commingled customer funds with his own,
guaranteed that principal would not be lost, and failed to provide
required risk disclosure statements, account statements and transaction
confirmations. In June, the court entered a consent preliminary
injunction which, among other things, enjoins Rutman from acting as an
FCM without being registered, grants the CFTC access to books and
records, prohibits Rutman's solicitation of customer funds, and
prohibits him from trading on any contract markets. CFTC v.
Rutman, No. 97-CV-3141 (E.D. Pa. filed May 1, 1997).

CFTC v. Berkshire International Hedge Fund L.P. II

In June, the Commission filed a civil injunctive action against Michael
Myatt, PragmaCapital Corporation, and the Berkshire International Hedge
Fund L.P. II, none of which had ever been registered with the Commission.
The three-count complaint alleges that the defendants engaged in
fraudulent conduct in connection with their operation of an unregistered
commodity pool. Under the terms of a consent preliminary injunction
entered on June 5, 1997, the court froze approximately $1.9 million of
customer funds, and the defendants have been ordered to perform a full
accounting of all funds received and their disposition. CFTC v.
Berkshire International Hedge Fund L.P. II, et al., No. 97-838MA (D.
Or. filed June 4, 1997).

CFTC v. Klitin, et al.

In August, the Commission filed a three-count injunctive complaint
against Oscar A. Klitin and Klitin Associates II. The complaint alleges
that defendants (1) misappropriated and converted over $200,000 of
customer funds, (2) failed to disclose material business dealings between
the pool, Klitin Associates, and Klitin, the pool operator, and
distributed misleading account statements to pool participants, (3)
failed to provide pool participants with quarterly account statements,
and (4) failed to distribute the 1996 Annual Report to each participant
and to file a copy with the CFTC. Shortly after the Commission filed the
complaint, the U.S. District Court for the Eastern District of New York
entered an ex parte restraining order against defendants, freezing
the defendants' assets and prohibiting them from destroying books
and records and from denying CFTC representatives access to such records.
Klitin is registered with the CFTC as a CPO. CFTC v. Klitin, et
al., Civ. No. 97-4793 (E.D.N.Y. filed Aug. 26, 1997).

CFTC v. Barback

Also in August, the Commission filed a two-count injunctive complaint
charging Ronald Barback with defrauding at least seven customers of at
least $165,000. The complaint, which the Commission filed within weeks
after the Division learned of the potentially violative conduct, alleges
that Barback, who has never been registered with the CFTC, misrepresented
to prospective customers his performance record and the risks associated
with trading commodity futures contracts. The complaint further alleges
that Barback guaranteed certain prospective customers that they would
profit from futures trading. In addition, the complaint charges Barback
with the unauthorized trading of at least one customer's account. At
the time the Commission filed the complaint, the U.S. District Court for
the Eastern District of Tennessee entered an ex parte freeze order
against Barback prohibiting him from destroying, altering, or disposing
of books and records. Shortly thereafter, in September, the court entered
a consent preliminary injunction which, among other things, grants the
Commission access to Barback's books and records; orders Barback to
make a full accounting; prohibits Barback from trading on any contract
markets; prohibits Barback from soliciting customer funds in connection
with commodity transactions; and enjoins him from acting in any capacity
which requires registration with the Commission. CFTC v. Barback,
No. 3:97-CV-638 (E.D. Tenn. filed Aug. 27, 1997).

Off-Exchange Instruments

The Division of Enforcement continues to address illegal offers and sales
of off-exchange futures contracts. During FY 1997, this activity focused
primarily on three types of instruments: those involving the sale of
''hedge-to-arrive'' grain contracts (''HTAs''), those
involving precious metals, and those involving foreign currencies
marketed to the general public. As to the last category of cases, under
the recent interpretation of the Treasury Amendment in CFTC v.
Frankwell, 99 F.3d 299 (9th Cir. 1996), the Commission has been
unable to pursue foreign currency cases where jurisdiction lies only
within the Ninth Circuit. However, enforcement efforts continue in other
jurisdictions. Some examples of cases involving fraudulent sales of
illegal off-exchange futures follow.

Hedge-To-Arrive Cases

In the first quarter of FY 1997, the Commission filed the first three
cases arising out of its investigation of certain hedge-to-arrive
contracts (HTAs) involving grain elevators, producers and marketers of
grain. The Commission's heightened surveillance of grain markets
during volatile market conditions in 1995 and 1996 prompted the
investigation. In re Grain Land Cooperative, CFTC Docket No. 97-1
(filed Nov. 13, 1996), alleges that Grain Land, a grain elevator, offered
and sold HTAs that constituted illegal, off-exchange futures contracts in
violation of the Act. In re Roger Wright, et al., CFTC Docket No.
97-2 (filed Nov. 13, 1996), charges Wright with acting as an unregistered
CTA and with fraud in connection with his marketing and promotion of, and
his entry into, illegal, off-exchange futures and option contracts. The
complaint also charges A.G. Edwards and one of its employees with aiding
and abetting Wright's unregistered activities and trading without
proper authorization. The complaint charges Buckeye Countrymark, a
cooperative grain elevator, with offering and entering into illegal,
off-exchange futures and option contracts. In re Southern Thumb Co-op,
Inc., CFTC Docket No. 97-3 (filed Nov. 13, 1996), alleges that
Southern Thumb, a cooperative grain elevator, violated the Act by selling
illegal, off-exchange agricultural options and engaging in fraud in
connection with its marketing of the illegal instruments.

Precious Metals Cases

In June 1997, the Commission filed a two-count civil injunctive complaint
charging C.O.M. Consultants (d/b/a Golden State Bullion), Richard Otto
(Golden State's president and owner) and Linton Samaru, Fred
Williams and Bruce Paine (all Golden State telemarketers) with
fraudulently selling illegal, off-exchange precious metals futures
contracts to the general public. The scheme purported to involve the
''purchase'' of platinum which was ''held'' outside the
U.S.. The Commission charged that, in fact, the transactions were not
proper purchase and finance arrangements, but instead had all the indicia
of futures contracts. In addition, the complaint alleges that
defendants' high-pressure sales pitch claims that their program
involves little or no risk and is likely to earn a large return in a
short period of time. On June 19, 1997, the day the Commission filed the
complaint, the court entered an ex parte order freezing Golden
State's assets and appointing a receiver to take control of the
company. The San Diego office of the FBI, the San Diego Boiler Room Task
Force, the California Department of Corporations, the Federal Trade
Commission, the Los Angeles County Police Department, the National Fraud
Information Center, the Better Business Bureau of Southern California,
and the Texas State Securities Board all provided assistance to the CFTC
during the investigation. CFTC v. C.O.M. Consultants, Inc., et
al., No. 97-4443 (C.D. Cal. filed June 19, 1997).

Foreign Currency Cases

In October 1996, the Commission filed a four-count injunctive complaint
naming World Wide Currencies, Inc., United Currencies Corp., and A+
Currencies International, Inc. as defendants. The complaint alleges that
the defendants committed fraud in the offer and sale to the general
public of illegal futures contracts on various foreign currencies,
operated as an unregistered FCM, and converted customers' funds to
personal or business uses. At the time the Commission filed the
complaint, the court issued an ex parte restraining order freezing
the assets of the three defendants, prohibiting the destruction of books
and records, and granting the CFTC access to such books and records. In
November 1996, the court entered a preliminary injunction to the same
effect. CFTC v. World Wide Currencies, et al., No. 97-7814
(S.D.N.Y. filed Oct. 16, 1996).

In January 1997, the Commission filed a seven-count administrative
complaint alleging that New York Forex and Peter Lai -- its sole
proprietor, President and CEO -- fraudulently solicited customers,
illegally offered and sold futures contracts, co-mingled and converted
customer funds, and bucketed orders. The complaint also alleges that New
York Forex operated as an unregistered FCM and that Andrew Scudiero
solicited customers on its behalf as an unregistered associated person.
Inre New York Forex Ex-Center Corp., et al., CFTC Docket
No. 97-5 (filed Jan. 28, 1997).

In August 1997, the Commission filed an eight-count administrative
complaint, charging Global Currencies Ltd., its three co-founders (Leon
Levitis, Ilya Levitis, and Alex Efrosman) and its sales manager and chief
trader (Paul Manfre) with, among other things, fraudulently selling
illegal foreign currency futures contracts to the general public.
Additionally, the complaint charges that the Levitis brothers and Global
Currencies cheated and defrauded customers in connection with the offer
and sale of these contracts, issued false reports and statements to
customers, bucketed customer orders, commingled and converted customer
funds, and violated the CFTC's registration requirements -- all in
violation of the Act. The complaint charges Efrosman and Manfre with
committing fraud, offering and selling illegal futures contracts, and
with registration violations. In re Global Currencies, Ltd., CFTC
Docket No. 97-13 (filed Aug. 7, 1997).

In July 1997, the Commission filed a civil injunctive complaint
(initially under seal) against two firms and two individuals. The
complaint charges Templer International, Ltd., Worldwide Commodities,
Ltd., William Sanchez, Worldwide's president, and Brian Willis,
Templer's president, with violating the anti-fraud, conversion, and
registration provisions of the Act and the Commission's regulations.
Among other violations alleged, the complaint charges that the defendants
fraudulently solicited customers to trade in the spot foreign currency
markets when, in fact, their funds were used, in part, to trade commodity
futures contracts. The complaint also alleges that the defendants
converted customer funds to their own personal and business uses.
Specifically, the complaint alleges that defendants misappropriated
approximately $1 million out of approximately $4 million solicited from
more that 300 customers nationwide. CFTC v. Templer Int'l, Ltd.,
et al., No. 97-Civ. 5255 (S.D.N.Y. filed under seal on July 17,
1997).

In a related matter, on September 12, 1997, the U.S. Attorney for the
Southern District of New York filed a seven-count indictment against
Sanchez, Willis and three others charging conspiracy, wire fraud and mail
fraud in connection with their activities at Templer, Worldwide and a
predecessor firm, Commonwealth Trading Group. The indictment charges that
the defendants fraudulently solicited funds to be traded in the spot
foreign currency market, mailed false account statements and wrongfully
used investor funds to pay for operational costs, for withdrawal demands
made by other customers and for personal use.

Improper Solicitation and Advertising

The Division of Enforcement monitors solicitation through all forms of
media including television, radio, and more recently, the Internet. The
Division investigates and pursues enforcement actions against individuals
and entities engaged in fraudulent advertising. Examples of the
Division's work in these areas during FY 1997 follow.

CFTC v Mass Media Marketing, Inc., et al.

In May 1997, the Commission filed a three-count civil injunctive action
charging Mass Media Marketing, Inc., Commodity Referral Service, Inc.,
and Rolando Nanasca with violations of anti-fraud and registration
provisions of the Act. None of the defendants has ever been registered in
any capacity with the CFTC. In the first case of its kind filed by the
Commission, the injunctive action seeks to halt allegedly fraudulent
advertisements and infomercials used to generate sales leads to be
referred to introducing brokers. In addition to alleging registration and
record keeping violations, the complaint alleges that the defendants
engaged in fraud by claiming that presently known market conditions and
predictable price trends that affect the spot market price of a commodity
increase the likelihood of profiting from options on that commodity's
futures contract and decrease the risks associated with such options.
CFTC v. Mass Media Marketing, Inc., et al., No. 97-1492 (S.D. Fla.
filed May 8, 1997).

In re Lexus Financial Group, Inc.

In November 1996, the Commission filed an administrative action alleging
that Lexus Financial Group, Inc., a registered introducing broker, David
Alan Luger, Lexus's co-owner and president, and Mark Lee Singer, its
co-owner and vice president, committed fraud by making false, deceptive,
and misleading statements in radio infomercials and in telephone
solicitations of customers to purchase commodity options. The alleged
misrepresentations included statements virtually guaranteeing commodity
price increases; overstating the extent to which option customers would
profit from these price increases; exaggerating the likelihood of profit
and minimizing the risk of loss in trading commodity options; and
overstating Lexus's performance record. The complaint further alleges
that since its inception in late 1992, Lexus has traded over 800 customer
accounts, over 88 percent of which have lost money, while Lexus has
received $5.3 million in commissions, representing more than 75 percent
of total customer losses. The complaint includes counts for fraud and for
failure to supervise. In re Lexus Financial Group, Inc., CFTC
Docket No. 97-4 (filed Nov. 25, 1996).

Internet Activities

The Division maintains an Internet surveillance program to monitor
commodity option and futures related web sites and homepages on the
Worldwide Web, as well as messages posted on Internet bulletin boards.
Staff also monitor various newsgroups and chat rooms relating to
commodity futures. This monitoring of the Internet has generated dozens
of enforcement inquiries concerning issues such as possible registration
violations, possible misrepresentations of the success of trading
programs and the offer of potentially illegal, off-exchange products. The
Division has also used the Internet to disseminate information to the
general public. In one injunctive case involving fraud by an unregistered
CPO in which the defendant fled, the Division used its homepage to post a
picture of the defendant in search of information concerning his
whereabouts. Later, when the court ordered an auction of defendant's
assets for the benefit of defrauded customers, the Division posted on its
homepage pictures of the personal property to be auctioned in order to
generate interest in the upcoming auction. To assist the public in
contacting the Division to report suspicious conduct, the Division's
homepage also contains an electronic questionnaire which can be completed
on-line. The homepage also provides access to the Proceedings Bulletin,
by which the public can check the existence of enforcement sanctions
assessed or actions pending against individuals and entities.

Supervision and Compliance Cases

In its efforts to ensure the sound practices of firms handling customer
funds, the Division investigates and prosecutes registrants which fail to
supervise diligently the handling of customer accounts and that fail to
establish adequate compliance systems to prevent fraud or market abuse.
The matters below illustrate the Division's work in this regard
during FY 1997.

On March 19, 1997, the Commission issued a report of investigation
concerning the conduct of Merrill, Lynch, Pierce, Fenner & Smith,
Inc. The investigation concerned the conduct of Richard Bell, who, while
an associated person (AP) of Merrill Lynch but outside his employment,
operated an unregistered commodity pool/''Ponzi'' scheme that
raised approximately $16 million from investors. The report, the first of
its kind issued by the Commission, indicates that Merrill Lynch received
several inquiries regarding Bell, but did not follow up other than by
interviewing Bell. The report concluded that information regarding an
employee's outside business activity can be relevant to an
assessment of the employee's ability to do his job and the
employer's discharge of its obligation to provide proper
supervision. The report expressed the Commission's belief that
Merrill Lynch's inadequately inquired into Bell's activities.
Merrill Lynch did not admit the facts or conclusions stated in the
report. Because the Commission had not previously considered the level of
inquiry required of a registrant regarding outside activities, the
Commission, in its discretion, determined to issue the report instead of
bringing an enforcement action. Report of Investigation in the Matter
of Merrill Lynch, Pierce, Fenner & Smith, Inc. (March 19, 1997).

CFTC v. Ahrens

In October 1996, as a result of a cooperative investigation with the
Securities and Exchange Commission and the Department of Justice, the
Commission filed and settled an injunctive action against Kent Ahrens, an
employee of First Capital Strategists. The complaint alleged that Ahrens
committed fraud by engaging in futures and options transactions contrary
to clients' authorizations, and misrepresenting the profits and
losses from his trading. According to the complaint, Ahrens, while
trading on behalf of The Common Fund, a pool of funds from colleges and
universities, engaged in a trading strategy which, over a three-year
period, resulted in losses of approximately $137 million. While the
losses were accruing, Ahrens allegedly concealed his trading from First
Capital and instead reported that his trading was profitable. First
Capital then reported those false results to The Common Fund in monthly
statements. Ahrens consented to the entry of a permanent injunction
enjoining future violations of the nature alleged, prohibiting him from
seeking registration with the CFTC and ordering him to pay restitution of
at least $182,000. CFTC v. Ahrens, No. 96-1855 (M.D. Pa. filed
Oct. 16, 1996). The SEC also filed an injunctive action against Ahrens
alleging violations of the securities laws. The U.S. Attorney's
Office for the Middle District of Pennsylvania filed criminal charges
against Ahrens.

In re First Capital Strategists

In a related matter, in August 1997 the Commission issued an order
instituting proceedings against, and accepting the offers of settlement
from, respondents First Capital Strategists and its four partners: John
J. McCollum, Paul J. Gangemi, Robert E. Frith, Jr., and Keith H.
Cunningham. McCollum and Gangemi were registered as APs of First Capital,
itself a registered CTA; Frith and Cunningham have never been registered
with the CFTC. The Commission found fraud, failure to supervise, and
recordkeeping and registration violations against First Capital and its
partners, specifically finding First Capital liable for its employee Kent
Ahrens' fraud. Without admitting or denying these findings,
respondents agreed to pay $2.6 million in restitution to the educational
institutions that lost money as a result of the misconduct. Under the
settlement order, the individuals have also agreed not to apply for
registration with the CFTC for a 5-year period, nor to act in supervisory
roles for 7 years. The staffs of the CFTC and the SEC worked together to
investigate and to negotiate the settlement, and the restitution sum
satisfies the disgorgement required under a settlement order of the SEC
which was issued simultaneously with the Commission's order. In
re First Capital Strategists, CFTC Docket No. 97-14 (filed Aug. 13,
1997).

In re Prudential Securities

In May 1997, the Commission filed a four-count administrative complaint
against Prudential Securities, Inc., Kevin A. Marshburn (a registered AP
of Prudential Securities, Inc.), Kathleen Chiappone, and Kathryn Sarabasa
alleging, in part, that Prudential had failed to supervise diligently
Marshburn's handling of commodity interest accounts. According to the
complaint, Prudential did not have policies and procedures in place which
could detect and deter the type of misconduct engaged in by Marshburn,
including supervisory and compliance systems which could identify and
respond to indicators of possible fraudulent trade allocation involving
an account executive's personal futures account. The complaint
alleges that Marshburn defrauded customers in connection with his
handling of commodity futures accounts by fraudulently allocating trades
between his personal futures account and customer accounts. In re
Prudential Securities, Inc., et al., CFTC Docket No. 97-8 (filed May
20, 1997).

In re Visioneering Research and Development Company

In July 1997, the Commission simultaneously instituted administrative
proceedings against and accepted offers of settlement from Visioneering
Research and Development Company and Robert W. Everson, the firm's
president, a principal, and stockholder. Visioneering is a registered
CTS, CPO and introducing broker, and Everson is registered as an AP of
Visioneering. The CFTC order, based on the settlement, finds that
Visioneering improperly included its proprietary trading results in
client performance results for its V-150 and V-SP500 programs. As a
result, Visioneering depicted a continuous client performance record of
up to 24 months when, in fact, there were months where no trading took
place on behalf of clients. Similarly, in months where Visioneering
traded on behalf of clients, the company distorted these results by
including proprietary trading results. The order finds that Visioneering
forwarded these distorted performance returns directly to clients in
disclosure documents, as well as to trade publications that, in turn,
disseminated this inaccurate information to their subscribers. Without
admitting or denying the findings in the order, Visioneering and Everson
consented to the entry of the order which directed both respondents to
cease and desist from further such violations and required Visioneering
to pay a $50,000 civil monetary penalty. Visioneering also agreed to
retain an independent consultant for a two-year period and to appoint a
compliance officer who will ensure that the information provided in
disclosure documents and to industry publications is accurate and
prepared in accordance with all applicable CFTC and NFA regulations.
In re Visioneering Research & Development Co., CFTC Docket No.
97-11 (filed July 30, 1997).

Trade Practice Cases

During FY 1997, the Division pursued investigations, filed actions and
obtained orders from the Commission which address specific types of
abusive conduct on exchanges. Examples of such matters follow.

In re Mitsubishi Corp., et al.

In June 1997, the Commission addressed the duty of inquiry required of
registrants when confronted by apparently prohibited trading activity by
their customers when it accepted offers of settlement from Mitsubishi
Corporation of Tokyo, Japan, Merrill Lynch Futures, Inc., Country
Hedging, Inc. and Charles B. Soule. In its order imposing sanctions in
accordance with the terms of the settlement, the Commission found that
Merrill Lynch accepted simultaneous orders to buy and sell equal
quantities of wheat spreads at approximately the same price from
Mitsubishi and transmitted them to Soule, an employee of Country Hedging,
a clearing firm on the Minneapolis Grain Exchange (MGE). Based on this
activity, the Commission found that the respondents had engaged in wash
sales in violation of the Act. The Commission also found that Merrill
Lunch violated recordkeeping requirements. Under the terms of the
settlement order, the Commission ordered the respondents to cease and
desist from violating the Act and to pay the following civil penalties:
Mitsubishi, $150,000; Merrill Lynch, $175,000; Country Hedging, $75,000;
and Soule, $15,000. The Commission also ordered Merrill Lynch and Country
Hedging, both registered FCMs, to implement and/or to maintain certain
compliance procedures relating to the handling of orders from customers.
The Commission suspended Soule's registration as an AP for three
months and conditioned his registrations as an AP and as a floor broker
for two years. In re Mitsubishi Corp., et al., CFTC Docket No.
97-10 (filed June 24, 1997).

In re Piasio and Wilson

In a related action, the Commission filed a two-count complaint against
Alfred R. Piasio and Donald W. Wilson alleging that each violated the
Act's wash sale prohibition in connection with simultaneous orders to
buy and sell equal quantities of wheat spreads at approximately the same
price. The complaint alleges that on eleven occasions in 1992 and 1993,
Piasio, then a registered AP employed by Merrill Lynch, accepted such
simultaneous orders from his customer, Mitsubishi, and transmitted them
to Soule on the MGE trading floor. Wilson, an independent floor broker at
the MGE, allegedly accepted the eleven pairs of simultaneous orders from
Country Hedging and executed eight of them by buying and selling spreads
simultaneously. According to the complaint, Piasio and Wilson violated
their duties of inquiry required of registered persons by accepting such
simultaneous orders without seeking clarification of the customer's
intent. In re Piasio and Wilson, CFTC Docket No. 97-9 (filed June
24, 1997).

Statutory Disqualification Cases

The Enforcement program investigates and prosecutes administrative
registration cases based on statutory disqualification. While the
National Futures Association (NFA) commences most statutory
disqualification actions as part of its delegated authority to handle
registration functions for the Commission, the Commission retains
authority to act directly in appropriate cases. Statutory
disqualification actions can result in suspension or revocation of
registration or conditioned or restricted registration. Such actions
ensure that commodity professionals meet high standards of fitness.
Examples of these cases filed in FY 1997 follow.

In May 1997, in related actions, the Commission simultaneously filed and
accepted two registrants' offers to settle registration actions
against ADM Investor Service, Inc. (ADMIS) and Benson-Quinn Commodities,
Inc. (BCQI), both registered FCMs owned by Archer Daniels Midland Company
(ADM). The Commission had not previously filed actions against registered
entities based on serious misconduct unrelated to the Act and Commission
Regulations engaged in by a parent company. Under the Act, misconduct by
a principal which would disqualify the principal from registration
creates a statutory disqualification for its subsidiaries. The
registration action stemmed from ADM's conviction for violations of
the Sherman Antitrust Act in a case filed by the Department of Justice.
In that case, ADM pled guilty to charges that it had participated in a
conspiracy to fix lysine and citric acid prices and agreed to pay fines
totaling $100 million. Accepting ADMIS's and BCQI's offers of
settlement, the Commission imposed restrictions designed to maintain the
independence of ADM's registered subsidiaries to the extent
possible. The Commission prohibited each firm from employing anyone with
any direct or indirect involvement in ADM's criminal conduct and
restricted the ability of the two firms to employ anyone also employed by
ADM. The two firms agreed to conduct weekly reviews of all trading done
by them on behalf of ADM and to report all information indicating
violative trading by ADM to ADM's corporate compliance officer. The
agreement required both firms to keep records of ADM's trading and
to make them available to the CFTC and NFA upon request. Finally, both
firms agreed that the CFTC may initiate statutory disqualification
actions against them if they or ADM have not complied with a
Compliance Agreement in Lieu of Debarment that ADM entered into
with the U.S. Department of Agriculture in January of 1997. Most of these
conditions will remain in effect for years. In re ADM Investor
Services, Inc., CFTC Docket No. SD 97-5 (filed May 16, 1997), and
In re Benson-Quinn Commodities, Inc., CFTC Docket No. SD 97-6
(filed May 16, 1997).

In re LaRocque

In November 1996, the Commission filed a registration action against and
accepted the settlement offer of John P. LaRocque, a registered floor
trader. The Commission's Notice of Intent to Suspend, Revoke or
Restrict LaRocque's registration alleged that LaRocque was the
subject of six separate Chicago Board Options Exchange (CBOE)
disciplinary proceedings, which LaRocque settled without admitting or
denying the allegations. Under the terms of the Commission settlement,
during a two-year period of conditioned registration, LaRocque must be
supervised by a sponsor who will provide close supervision of his
trading. LaRocque may not serve on certain self-regulatory committees,
including disciplinary committees, arbitration panels, and governing
boards. In re LaRocque, CFTC Docket No. SD 97-1 (filed Nov. 26,
1996).

In re Graeber

In February 1997, the Commission filed and accepted respondent's
offer to settle a registration action against James P. Graeber, a
registered floor broker. The Commission's Notice of Intent to
Suspend, Revoke or Restrict Registration alleged that Graeber was
statutorily disqualified from registration as a result of a felony
conviction for reckless homicide and a conviction for misdemeanor theft.
The terms of the settlement prohibit Graeber, during a two-year period of
restricted registration, from acting as a registrant unless he obtains a
sponsor who will closely supervise his activities. The agreement also
prohibits Graeber from acting as a principal, partner, officer, or branch
office manager of any entity required to be registered with the
Commission; acting as a supervisor over anyone required to be registered;
exercising discretionary authority over orders (with limited exceptions);
and serving on certain self-regulatory committees. In re Graeber,
CFTC Docket No. SD 97-2 (filed Feb. 27. 1997).

In re Zuccarelli

In March 1997, the Commission filed a Notice of Intent to Revoke, Suspend
or Condition Eric Zuccarelli's registration as a floor broker. The
Notice alleges that COMEX twice charged Zuccarelli with rule violations,
including prearranged and noncompetitive trading and record keeping
violations. On the first occasion, following a hearing, the COMEX imposed
a $30,000 fine, a two-week suspension, and a cease and desist order. On
the second occasion, the COMEX accepted Zuccarelli's offer of
settlement by which it assessed a $50,000 fine (half of which was
suspended with the provision that future rule violations would result in
automatic imposition of the remaining portion of the fine), imposed a
four-week suspension, and issued a cease and desist order. The
Commission's Notice alleges that facts underlying the COMEX
disciplinary actions constitute a basis for statutory disqualification.
In re Zuccarelli, CFTC Docket No. SD 97-3 (filed Mar. 5, 1997).

In re Hanley

In April 1997, the Commission filed and accepted respondent's offer
to settle a registration action against Kevin Hanley, an applicant for
registration as a floor broker. The Commission's Notice of Intent to
Suspend, Revoke or Restrict Registration alleged that Hanley was
statutorily disqualified from registration as a result of a plea of
guilty to misdemeanor theft. The terms of the settlement prohibit Hanley,
during a two-year period of restricted registration, from acting as a
registrant unless he obtains a sponsor who will closely supervise his
activities. The settlement also prohibits Hanley from acting as a
principal, partner, officer, or branch office manager of any entity
required to be registered with the Commission; acting as a supervisor
over anyone required to be registered; exercising discretionary authority
over orders (with limited exceptions); and serving on certain
self-regulatory committees. In re Hanley, CFTC Docket No. SD 97-4
(filed Apr. 8, 1997).

In re Wheeler

In July 1997, the Commission simultaneously filed and settled a
registration action against Richard F. Wheeler. The Commission's
Notice of Intent to Refuse or Condition Registration alleged that on
eighteen separate occasions Wheeler had been fined for recording
inaccurate execution times as a stock options trader at the Chicago Board
Options Exchange. In addition, Wheeler willfully failed to disclose the
CBOE disciplinary actions when he submitted his floor broker application.
These facts, the Commission alleged, constituted a basis for refusing to
register Wheeler or for conditioning his registration under Sections
8a(3)(M) and 8a(3)(G) of the Act. In its opinion and order accepting
Wheeler's offer of settlement, the Commission granted Wheeler's
floor broker registration subject to conditions including the following:
(1) he cannot act as a principal, partner, officer, or branch office
manager of any entity registered or required to be registered with the
Commission; (2) he may not act in any supervisory capacity over anyone
required to be registered with the Commission; (3) he may trade only for
proprietary accounts of a particular entity; (4) he may not act as a
floor broker unless supervised according to the terms of the settlement;
and (5) his registration will be automatically suspended if he is charged
with certain disciplinary offense as defined in the Commission's
regulations. The order further provides that the conditions will remain
in effect for two years from the date of the order. In re Wheeler,
CFTC Docket No. SD 97-7 (filed July 24, 1997).

In re Shaner

In September 1997, the Commission simultaneously filed and settled a
registration action against Mark Shaner, a registered AP, and Shaner
Trading Partners, Inc., a registered CPO and IB. The Commission's
Notice of Intent to Suspend, Revoke or Restrict Registration alleges that
on July 31, 1997, the U.S. District Court for the Southern District of
Iowa entered a consent order of permanent injunction against Shaner and
Shaner Trading Partners, Inc. The consent order stemmed from a four-count
CFTC civil complaint filed on January 4, 1996, alleging that the
defendants defrauded commodity pool participants, engaged in commodity
pool fraud, and misappropriated and converted customer funds. The
permanent injunction prohibits Shaner and Shaner Trading Partners from
violating the Act as charged and from seeking registration with the CFTC
in any capacity, among other sanctions. In addition, the court ordered
disgorgement. The Commission's Notice of Intent further alleges that
the consent permanent injunction constitutes a basis to suspend, revoke
or restrict Shaner's and Shaner Trading Partners' registrations
under Section 8a(2)(C)(ii) of the Act. The CFTC's settlement order
revokes Shaner's registration as an AP and revokes Shaner Trading
Partners' registrations as an IB and CPO. In re Shaner, CFTC
Docket No. SD 97-8 (filed September 23, 1997).

Recordkeeping Violations

The Division pursues actions against registrants who fail to maintain
records and to produce records needed in an enforcement investigation.
The Division and the Commission take seriously improper conduct that
interferes with the Commission's ability to investigate possible
wrongdoing. An example of one such case filed in FY 1997 follows:

In re Kelly

In February, the Commission filed an administrative complaint against
Sean G. Kelly, who has been registered with the CFTC as a CTA since
January 1996. The one-count complaint charges Kelly with failing to
maintain books and records in a manner prescribed by the Commission and
failing to furnish these books and records to representatives of the
Commission when requested to do so. In re Kelly, CFTC Docket No.
97-6 (filed Feb. 26, 1997).

Cooperative Enforcement

Domestic

Cooperative enforcement efforts enhance the Division of
Enforcement's ability to promote compliance with and to deter
violations of federal commodities laws. During FY 1997, the Division
coordinated enforcement efforts with numerous local, state and federal
law enforcement and regulatory authorities and agencies. This cooperation
has resulted in the filing of several administrative and injunctive
actions.

Additionally, the Division's cooperation with law enforcement
agencies can result in the filing of criminal charges by those agencies.
For example, through the cooperative efforts of the Division, the SEC and
the Department of Justice (DOJ) filed a criminal information against
Michael Tropiano alleging 66 counts of mail fraud, one count of
securities fraud, one count of commodity pool fraud, and two counts of
tax evasion. United States v. Tropiano, Cr. No. 96-0061401 (D.N.J.
1996). The filing of the criminal information coincided with the joint
filing of an injunctive complaint against Tropiano by the CFTC and SEC.
SEC and CFTC v. Tropiano, No. CV 96-228 (D.N.J. 1996).

In March 1997, an indictment was unsealed charging six defendants with
participating in a multi-million dollar foreign currency trading scheme
during their employment as executives and employees at Korbean
International Investment Corporation (''KIIC'') from 1992-1995.
The indictments were the result of cooperative efforts of the Division,
the DOJ, the FBI, and the Attorney General's Office for the State of
New York. United States v. Young C. Park, et al., No. 97 Cr. 170
SHS. Bong Jae Kim, the former vice-president of KIIC, previously pled
guilty to conspiring to commit mail fraud at KIIC. The criminal
indictment followed the joint filing of an injunctive action against
Korbean and others by the CFTC and the Attorney General for the State of
New York. CFTC and Attorney General for the State of New York v.
Korbean International Investment Corp., et al., No. 95 CV 0919
(S.D.N.Y. 1995). In February 1995, the court entered permanent
injunctions against Korbean and Bong Jae Kim.

In August 1997, the U.S. District Court for the Eastern District of
Michigan sentenced Elliot Nachwalter to serve a term of three years in
prison and to pay approximately $120,000 in restitution as a result of
Nachwalter's scheme to defraud investors in his commodity trading
firm, Nachwalter Financial Development Corporation. Both the CFTC and the
FBI, in cooperation with the DOJ, investigated the matter. United
States v. Elliot Nachwalter, Cr. No. 94-81035.

In September 1997, the U.S. Attorney for the Southern District of New
York filed a seven-count indictment against William Sanchez, Brian
Willis, and three others charging conspiracy, wire fraud and mail fraud
in connection with their activities at Templer International, Ltd.,
Worldwide Commodities Ltd. and a predecessor firm, Commonwealth Trading
Group. The indictment charges that the defendants fraudulently solicited
funds to be traded in the spot foreign currency market, mailed false
account statements and wrongfully used investor funds to pay for
operational costs, for withdrawal demands made by other customers and for
personal use. United States v. William Sanchez, et al., No. 97 Cr.
912. The Commission named Sanchez and Willis as defendants in a civil
injunctive complaint filed by the Commission alleging violations of the
antifraud and registration provisions of the Act and the
Commission's regulations. See CFTC v. Templer Int'l, Ltd.,
et al., No. 97-Civ. 5255 (S.D.N.Y. filed under seal on July 17,
1997).

International Cooperation

The cooperative enforcement efforts of the Division extend
internationally. In FY 1997, the Enforcement Division made 30 requests
for assistance to 21 foreign authorities. In addition, Enforcement
received 49 requests from 25 authorities in foreign jurisdictions.
Information exchanged between the Commission and foreign authorities has
included information on registration status and disciplinary history of
U.S. and foreign firms and individuals; evidence -- including testimony
and bank and brokerage account records -- for use in investigations and
enforcement actions; and details from ongoing investigation and
litigation files. Foreign authorities also have assisted the Commission
in locating and serving defendants outside of the United States.

Such cooperation with regulators and law enforcement authorities from
around the globe comes about through the establishment of arrangements to
share enforcement information. On May 27, 1997, for example, the
Commission and the Financial Services Board (FSB) of South Africa signed
a cooperative enforcement arrangement entitled a ''Joint
Communiqué.'' The Joint Communiqué establishes a formal
arrangement between the Commission and the FSB for the exchange of
information relating to investigative, enforcement, supervisory and
surveillance matters. Under the arrangement, the CFTC and the FSB have
agreed to provide each other with the fullest mutual assistance permitted
by U.S. and South African law.

The Division also pursues cross-boarder cooperation through its
participation in organizations such as International Organisation of
Securities Commissions (IOSCO) -- especially through the IOSCO Technical
Committee's Working Party on Enforcement and the Exchange of
Information. During FY 1997, with the Division's participation, the
Working Party continued its efforts to improve international cooperation
and the exchange of information among IOSCO members and completed its
mandate concerning the enforcement challenges presented by the increasing
use of electronic networks such as the Internet. During FY 1997, the
Division participated in the annual Wilton Park International Securities
Regulators Conference, which Her Majesty's Treasury of the United
Kingdom sponsors. The conference focused on current international
enforcement issues.

The Division provides assistance and advice to the U.S. delegation to the
Financial Action Task Force (FATF), an international body dedicated to
promoting the development of effective anti-money laundering controls and
enhanced cooperation in money laundering investigations. The assistance
provided in FY 1997 involved responding to an evaluation of the U.S.
anti-money laundering program undertaken by FATF and completing a review
of U.S. laws relating to identification of account holders at financial
institutions such as futures firms.

In May, the Division and the SEC's Office of International Affairs
hosted an Internet Surveillance Training Program for members of
IOSCO's Working Party on Enforcement and the Exchange of
Information. The interactive program included an exchange of techniques
for detecting securities and futures violations on the Internet and
application of the Internet to educate investors. Participants also
discussed methods of tracing the source of Internet communications and of
preserving electronic information for evidence in enforcement
proceedings. Participants from 15 IOSCO member jurisdictions and a
representative from the IOSCO Secretary-General attended the program.